Goldilocks stocks?

Mid-sized companies are mature enough to have successfully overcome the growing pains that upend many small- and micro-cap equities. But as established players with proven track records, they also benefit from better access to capital markets. The ability to redeploy lower cost capital often allows mid-caps to move into new markets, expand product lines and otherwise execute their strategies.

At the same time, these mid-sized businesses do not typically suffer from the growth challenges that plague many of the largest, most recognizable global brands. Mid-caps do not necessarily need to deliver results through financial engineering, cost cutting, or risky acquisitive strategies as many of the largest companies may do. To the contrary, mid-caps are just hitting their stride.

In our view, this combination of stability, attractive growth potential, and relatively strong liquidity makes mid-sized companies compelling.

Syed Zamil – Mellon Capital, BNY Mellon company

Mid-sized companies are mature enough to have successfully overcome the growing pains that upend many small- and micro-cap equities. But as established players with proven track records, they also benefit from better access to capital markets. The ability to redeploy lower cost capital often allows mid-caps to move into new markets, expand product lines and otherwise execute their strategies. At … read more

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Revving up for Fed action

Domestic economic momentum has been re-established, the UK shock has been distributed through global financial markets with little apparent consequence for the US, resource margins have mostly been eliminated, and inflation is on a modest incline. A 25 basis point higher nominal funds rate, even a 50 basis point higher one, by year end keeps the real federal funds rate negative and monetary policy accommodative even as it reassures investors that the Fed has not mislaid the keys to the monetary-policy-tightening machine.

We think that Chairwoman Yellen accedes to tightening this year because she recognizes that a one-quarter-point hike reminds the world that the Fed is on duty and reassures her colleagues that they are all on the same page. As for timing, Fed planners probably gravitate to December. For the dovish Fed leadership, an action postponed might never happen. Waiting until December gets a free look at the election results, which are surely material to understanding the other sources of policy impetus in 2017 and beyond. Any committee hurt about delaying in September can be salved by reporting in the Summary of Economic Projections that the preponderance of the FOMC prefers a one-quarter point higher policy rate at the end of the year, making the dots matter. After all, if they are willing to publish that, they are virtually contracting on a December move.

Vincent Reinhart – Standish, a BNY Mellon company

Domestic economic momentum has been re-established, the UK shock has been distributed through global financial markets with little apparent consequence for the US, resource margins have mostly been eliminated, and inflation is on a modest incline. A 25 basis point higher nominal funds rate, even a 50 basis point higher one, by year end keeps the real federal funds rate … read more

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The march of Millennials: What investors need to know

The Millennial generation is now transitioning from the 15-24 age cohort, which has little discretionary spending power, into the 25-35 age cohort associated with household formations and rising discretionary spending. This confluence of Millennials reaching ‘spending age’ and Baby Boomers ageing out of their spending years is expected to significantly affect consumption over the next decade. We believe this demographic transition will pressure consumer spending dollars by roughly 1% a year until 2019, at which point spending should then accelerate. The composition of spending dollars will likely be affected even more dramatically.

The Millennial consumer will represent the highest percentage of peak earners by 2020, and by 2025 will represent 50% of peak earners in the US. No wonder consumer companies have begun to focus on the Millennial customer in such a big way. Addressing the Millennial customer requires a change in strategic direction for many companies, which, combined with the digitalisation of the economy, creates both opportunities and challenges. This is a major focus for our analysts during our management interviews. How do you compete with online retailing giants? How do you acquire a new customer? How is your marketing budget changing? Does your brand have authenticity? How do you retain Millennial employees? These are the questions companies need to answer, which are critical for investment decisions related to this demographic theme.

The Boston Company US Small Cap Growth Team

The Millennial generation is now transitioning from the 15-24 age cohort, which has little discretionary spending power, into the 25-35 age cohort associated with household formations and rising discretionary spending. This confluence of Millennials reaching ‘spending age’ and Baby Boomers ageing out of their spending years is expected to significantly affect consumption over the next decade. We believe this demographic … read more

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Venezuela’s sink-or-swim moment

Determining just when Venezuela might run out of money is complicated by several factors, one of which is the poor quality of official economic data, which makes it difficult to gauge precisely how dire the country’s fortunes are. While many energy-producing emerging markets are struggling due to low oil prices, Venezuela’s unique political culture and fiscal policies leave the country with fewer options than other countries have in order to address a balance of payments crisis of this nature.

Venezuela’s relationship with the IMF and other international institutions has been so strained by the anti-free market policies of former president Hugo Chavez and his successor that getting assistance from multinational institutions is not an option. Any sort of international financial assistance would likely come with conditions that would require a massive revamping of an economy that has diverged sharply from international norms over the past 14 years. While a similar package of reforms imposed by international donors kept Greece from defaulting last year, Venezuela is not politically capable of doing what Greece did in accepting an international bailout, which was the introduction of painful cuts to government programs.

Venezuela is an idiosyncratic case. It is not the same as any other oil producer. Most other oil producers are suffering just as much, but they have flexible exchange rates and better managed economies. The fact that the foreign exchange in most cases is floating has helped those countries to alleviate the pressures of a low oil price. While the oil price has fallen, the government in Venezuela has kept spending just the same, so the country has a huge fiscal debt. This is a self-imposed crisis, and I cannot think of many countries in the world that have managed to destroy their economy in such a short period of time.

Javier Murcio – Standish, a BNY Mellon company

Determining just when Venezuela might run out of money is complicated by several factors, one of which is the poor quality of official economic data, which makes it difficult to gauge precisely how dire the country’s fortunes are. While many energy-producing emerging markets are struggling due to low oil prices, Venezuela’s unique political culture and fiscal policies leave the country … read more

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